Malta’s New Crypto Laws

Tiny, but a “crypto-beast”, Malta, a little European island in the Central Mediterranean Sea has grown to be the leading innovator in the blockchain space – a journey that begun a few months ago when bitcoin’s boom spawned across the globe.

However, as expected, there has been a lot of resistance from the governments and regulators who see the digital currency as a threat to their fiat currency and a loophole to tax evasion and criminal activities.

Now fast-forward to Year 2018.

Malta has been dubbed as a ‘cryptocurrency haven’, as the country’s legislation was made to attract fintech and blockchain projects to their shores in the hope of creating a potential financial revolution to boost its economy.

The fact that Binance, the world’s largest crypto exchange, has moved its headquarters to Malta and that OKEx has also announced its extension to Malta is a good indication of Malta’s pro-crypto policy.

Malta is an island nation on the Mediterranean coast in southern Italy, geographically located in the EU Member States in 2004 and Maltese and English are official languages. Because it is a Commonwealth country, the influence of the UK legal system is great.

For the ICO, the establishment of a corporation is essential, and in the case of Malta, the Companies Act of 1995 applies. The minimum capital is 1,165 euros (approx. 1.5 million won), which is not large. The minimum number of directors is 1 and there is no restriction on nationality or residence. However, for tax reasons, it is desirable that many of the directors reside in Malta.

All types of companies must have at least one secretary, and the clerk has no restrictions on nationality or place of residence. However, the clerk must be a natural person.

The minimum shareholder is two persons except for single member companies. The shareholder may be a corporation, and there are no restrictions on nationality or residence.

The legal entity must be located in Malta, and a shareholders’ meeting must be held at least once a year, but it does not necessarily have to be held in Malta. Every year, every company must be audited by a CPA, which should be submitted to the Malta Register.

35% tax rate applies to corporation tax and capital income, but in reality it is very low (about 5%) because various discounts are applied. The establishment period of the corporation is 2 days if there is no problem in the documents.

In Malta, the ICO is managed by the Maltese Financial Services Authority (MFSA). Malta is friendly to the ICO, as already stated. The ICO white paper must be approved by the MFSA.

Meanwhile, on April 24, 2018, the Malta Cabinet approved the Virtual Money Assets Bill, the Technology Innovation Authority Bill, and the Virtual Financial Assets Act, (Virtual Financial Assets Act, VFAA), the bill contains the discipline framework for cryptography and ICO. The three bills, including the virtual financial assets bill, were passed on to the current parliament and discussed.

The core of the VFAA Act is the Financial Instrument Test (FIT), which MFSA announced in May 2018. This test divides the token into three parts.

(A) unregulated virtual tokens or utility tokens; b) EU legislation such as MiFID (Markets in Financial Instrument Directive 2) or Maltese Investment Service The financial instruments to which the Malta Investment Services Act applies, and c) the virtual financial assets to which the VFAA to be introduced will apply.

A virtual token (utility token) means that there is no usefulness, value, and applicability outside the platform on which the DLT asset is issued, and that the platform can not be exchanged for funds. The virtual financial asset is not an electronic money, financial product or virtual token It is the function of money.

Therefore, if the ICO wishes to issue a token rather than a virtual token (utility token), it must meet the requirements of MiFID or VFAA, whether Maltese or foreigner. For example, if an ICO token corresponds to a MiFID financial instrument, a business plan that meets MiFID requirements should be submitted to MFSA.

So, why is Malta different from other countries which have also embraced cryptocurrencies?

The answer: its regulatory framework.

Devised in less than two months, the government, with the help of both local and international reputable stakeholders in the crypto sphere, created a comprehensive framework which now caters for the technical, financial and legal aspects of all crypto-related activities and blockchain. These laws promote business growth without the red tape common in other countries while providing the investors a legal certainty and peace of mind for their tokens.

The crypto law, which was presented to Maltese Parliament for their first reading in April 2018 as Distributed Ledger Technology (DLT) framework include:

1. The Virtual Financial Assets Act (VFA)

This Act is set to regulate all future initial coin offerings. The law states that all new crypto-related companies that want to raise their funds ICOs should publish their white papers with an outlined and well-detailed description of the entire project. All companies must abide by the law and publicize their financial history. For full text of this act, please go here.

2. The Malta Digital Innovation Authority Act (MDIA)

This Act establishes the Malta Digital Innovation Authority which serves as a regulatory body for all blockchain related industries. This creates a formal regulatory procedure for the cryptocurrency industry.

Headed Stephen McCarthy, the recently announced Chief Executive Officer by the Times of Malta, the functions of the MDIA will be carried out by a Board of Governors. For full text of this Act, please go here.

3. Innovative Technology Arrangements and Services Act (ITAS)

The ITAS Act focuses on the registration and certification of:

  • All technology service provider.
  • Technology arrangements.
  • Exchanges in Malta.

This Act also caters for the exercise of the MDIA regulatory functions. For full text of this Act, please go here.

The future is bright for Malta.

While other countries and organizations such as the G20 group of countries are still gathering relevant data about cryptocurrencies in order to create a united force of similar regulations across borders, Malta is already the first jurisdiction in the world to have legal certainty in blockchain and crypto-related industries. And the good news for Malta is, the G20 might take long to agree, or probably never come to a formidable agreement.

Already, crypto-businesses have stepped up the pace by establishing their Headquarters in Malta as they explore the potential spawning of blockchain across other different spheres including Automobile, Mobile Gadgets, Finance and Banking, Government Processes as well as Shipping Logistics.

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